There is more income inequality today than in the past, and we’d like to reverse that if we could. Without cost, that is. There are a lot of things we’d like to do without, but just can’t change. Let’s suppose there’s an asteroid out there that might hit our planet and destroy all life on Earth, but that we simply can’t do anything about. The causes of Canadian income inequality are like that asteroid.

First, the technological revolution. Factory jobs that used to provide a reliable entry into the middle class are increasingly performed by machines, from robots on the floor plant to check-out kiosks at Home Depot. The iron law of the new economy is that anything which can be turned into an algorithm will be performed by machines and not by humans. In the process, middle-class jobs have cratered, and while we might not like that, we’re not going to start throwing our iPhones into the river. Just the opposite. We’d like to see Canadian companies compete in the new economy and would want BlackBerry to wipe the nose of Apple.

Second, globalization. The growth of a world economy has moved jobs offshore from Canada to Third World countries. We might not like that either, but at the same time it’s moved people in Third World countries out of poverty, more than a billion of them, and it’s a bit much to object to that. And it’s not as though a retreat from free trade to a corporate state’s trade barriers is the answer. The last thing we need is corporate cronies begging politicians for protection from competition.

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Third, globalization technology. When globalization interacts with new technology, there are immense economies of scale in corporate management. Before the advent of new technology, deeper levels of firm management were required, branch managers and the like. Today that work shifts to the head office, and that in turn produces a winner-take-all economy with enormous rewards for those on top and a sharp fall-off in earnings for those one rung down.

Finally, genetic advantages. Twenty years ago Charles Murray and Richard Herrnstein argued in The Bell Curve that I.Q. determined where one placed on the economic ladder. That book was very controversial, but the field it created — genoeconomics — has of late become respectable because I.Q. no longer seems to make a great difference. Instead, other qualities, such as industry, optimism and a willingness to defer gratification seem to explain the difference between wealth and poverty. And that’s going to matter in the inequality debate. If Lady Gaga was born that way, why not the rich?

The point is that it’s not enough to point to income inequality. How we got there also matters. That’s something that Jean-Jacques Rousseau recognized. He was the first modern to put inequality on the map, and he distinguished between two kinds of inequality. Natural inequality arises from the physical and behavioural differences amongst people. It’s the inequality of tall vs. short basketball players, and of industrious vs. shirking workers. We can’t do all that much about this, but then there’s the bad kind of inequality, political inequality, that arises from unjust privileges. What Rousseau had in mind was the special privileges of 18th century French aristocrats, but the same kind of thing can be seen in the forms of crony capitalism and barriers to advancement one observes in the United States.

The real problem is immobility, not inequality

There’s always room for fine-tuning, especially with respect to native Canadians, but such inequality as there is in Canada comes down essentially to Rousseau’s natural inequalities. These are things we can’t or won’t change. And we all know this. So worrying about them is sheer waste, and even something worse than waste — the preening sentimentality that has no answers but wants you to know just how sensitive it is, how deeply it feels your pain.

There’s one more reason why we shouldn’t worry about inequality and that’s because the real problem is immobility, not inequality. We don’t mind inequality when we think we all have an equal shot at climbing the ladder. In the United States, income mobility is called the American Dream, though it’s more properly called the Canadian Dream, since, unlike America, Canada is a country of economic mobility. We’re one of the most mobile countries in the First World. And that’s not just me saying it. That’s the conclusion the Pew Charitable Trust reached when it looked at the correlation between the earnings of parents and children. The difference between America and Canada is especially marked in the bottom and top economic rungs. In America, poor parents raise poor children, while rich parents raise rich children. That just doesn’t happen in Canada, and it should be a matter of great pride for us. The Americans have created a class society, and we’ve avoided this.

There are always people who will tell you how awful we are, but this is one of the fairest societies in the world. That’s what the world thinks of us. So if we’re in bad shape, then the rest of the world must indeed be a hellhole.

National Post

F.H. Buckley teaches at George Mason University Law School. He will be arguing for the motion “Canadians should stop worrying about income inequality” for the Macdonald-Laurier Institute’s first Great Canadian Debate of 2015.

Best Buy announced Saturday it is shutting down dozens of Future Shop stores across Canada, effective immediately, resulting in about 1,500 job losses.

Of 131 Future Shop locations across the country, 66 will be shuttered for good and the remaining 65 will be turned into Best Buy outlets. That will leave Best Buy with a total of 192 locations across Canada, including 136 big box stores and 56 Best Buy Mobile stores.

Best Buy bought the iconic Canadian electronics retailer for $580 million in 2001, but has operated both brands concurrently.

The company noted in its announcement Saturday that many Future Shop and Best Buy stores are located “adjacent to each other, often in the same parking lot.”

The FutureShop.ca website will also be consolidated into Best Buy’s.

About 500 full-time and 1,000 part-time positions will be eliminated as a result of this move, but Future Shop says affected employees will receive severance and other support.

Best Buy has also promised to invest about $200 million in its stores and web properties, and to hire more staff. It did not say whether Future Shop employees would be given special consideration for those positions; a spokesperson told the National Post that “in some cases employees will be offered the opportunity to reapply.”

John Lucas/Edmonton JournalWorkers stand outside of the west end Future Shop store in Edmonton after being laid off March 28, 2015.

Best Buy says the consolidation will hurt its earnings for fiscal 2016 in the range of 10¢ to 20¢ USD per share due to a temporary increase in operational expenses.

The end of Future Shop comes only months after Target Canada announced the closure of all its 133 stores after failing to win over Canadian customers since it took over most of the former Zellers locations in 2011. Big box retailers are also struggling to move more of their business online to compete against giants like Amazon, which captures the largest chunk of Canada’s $21.6-billion in e-commerce sales.

The Conservatives have used a pile-driver to make the point that they are the party that will ensure jobs, growth and long-term prosperity.

Or at least they did until recently.

Of late, there have been few jobs to boast about, not to mention precious little growth and fears about long-term prosperity.

It’s no coincidence that in recent weeks, the Harper government has preferred to talk about security and what people should wear at citizenship ceremonies. Jason Kenney, the defence minister, and Rob Nicholson, the foreign affairs minister, were both out pitching the extension of the mission in Iraq and Syria on Wednesday, even if neither could suggest what the next step might be once the Islamic State is successfully “degraded.”

The channel change is timely for the Conservatives, just as the oil price collapse begins to bite.

The Bank of Canada has deemed the fall in oil prices to be “unambiguously negative” for Canada, pointing out the impact on trade, business investment, the dollar and hiring intentions.

The federal budget is likely to balance, albeit using the contingency fund, but elsewhere the landscape is gloomy.

This week TD Economics forecast that the unemployment rate will rise to 7% by the end of the year – meaning it’s likely we will go into a general election campaign at a time of rising unemployment.

Not only that but the nature of the jobs that are available is precarious.

Even when jobs numbers are on the rise, as in January, they are largely in casual work. There is no job security or wage bargaining power being an Uber driver.

The labour participation rate, a more accurate measure of employment health, is just 62.8%. Workers can’t get full-time jobs and so are leaving the labour market. If that participation rate were at the same level as the beginning of the economic crisis, the unemployment rate would be 9%.

The Liberals have woken up to the sense that the Conservatives’ reputation as effective stewards of the economy could be stained, if enough dreck is thrown at the recent job creation record. Even in the midst of the current security frenzy, the Grits have peppered the government with questions about the sluggish jobs numbers in the House of Commons.

If the first quarter GDP numbers confirm the economy actually shrank in the first three months of the year – a very real possibility based on the contraction in January – Justin Trudeau will have some heavy duty ordnance to lob across the aisle.

This is the stuff that people vote on. In a recent EKOS poll, 41% of respondents said “restoring middle class progress” is the most important issue for them, against 20% who rated security.

“The election will be won and lost on the middle class, not the Middle East,” said one senior Liberal.

The election will be won and lost on the middle class, not the Middle East

The same EKOS poll asked voters to rate their own economic progress. More than one third said they had fallen behind in the last year, against just 14% who said they’d moved ahead. Just one in five said they thought they’d be better off in five years time.

“Those are coffin-nail numbers. We just have to figure out how to drive them in,” said the Liberal source.

Therein lies the rub. How to convince Canadians they’d be better off turfing the Tories? The Liberals have a plan to help the middle class that is likely to mean middle-bracket tax cuts and child benefits payments, while painting the Conservatives as a party that wants to cut taxes for the rich.

Income redistribution will get them so far.

In addition, both opposition parties need to offer plans that will spur economic growth. The Liberals have already hinted at a strategy based on fiscal stimulus and investment in public infrastructure.

But beyond all the economic prolix, it will come down to which leader can best convince voters they will be better off if they are prime minister. Mr. Trudeau needs to crack the supposition that he’s not ready to govern; Mr. Mulcair has to assuage the suspicion that an NDP government would torpedo the economy and vaporize wealth.

Voters have trusted Mr. Harper in three successive elections but his promise of jobs, growth and long-term prosperity is looking more washed out with every new employment report.

Scary headlines sell, and the world economy since the 2008 crisis has given writers of scary headlines lots of material. Lately, the large type has featured two themes: Deflation, which threatens to suck the major economies into a black hole; and currency wars, which will have us at each other’s throats as we sink.

Hoping a turn of phrase can compete with the prophets of disaster, I must protest: this is altogether too much of a bad thing. The deflation doomsayers and the currency-war Jeremiahs can’t both be right. Yes, deflation is a threat — in theory. But probably not in reality. And if a desire to devalue their currencies prompts central banks to print more money, certainly not in reality.

That assurance may seem glib to the deflationists. They can certainly point to some anemic price measures. In the United States, the consumer price index (CPI) is down year-over-year, as are consumer prices in the Eurozone.

Last month, Bank of England Governor Mark Carney had to write a formal letter to the Chancellor of the Exchequer explaining why U.K. inflation is more than 1 percentage point below target. Even here in Canada, where demand has been relatively robust since the crisis, CPI inflation is right at the bottom of the Bank of Canada’s 1%-to-3% band.

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Moreover, the doomsayers point out, these numbers don’t yet show the full impact of lower oil prices since last summer. A recent “leader” (editorial) in The Economist warned that people may come to expect continuously falling prices. They might start stuffing cash into mattresses. Central banks won’t be able to expand money and credit. Spending and output will grind to a halt — as happened in the 1930s.

The prophets of currency wars can also cite startling statistics. Most exchange rates are quotes against the U.S. dollar, and against the U.S. dollar, most currencies are way down. The Euro recently hit a 12-year low. The U.K. pound is down more than 10% over the past year. Emerging-market currencies have tanked. Even the Canadian dollar, almost 94 U.S. cents last summer, is close to 78 cents now.

For U.S. exporters, these swings are a problem, as they are for anyone outside the United States with big U.S.-dollar debts. But the concern is broader than that. We’re hearing talk about currency manipulation, competitive devaluations, beggar-thy-neighbour policies … more ominous references to the 1930s.

Enough already! The headlines in the 1930s were truly disastrous. On the economic front, country after country closed its borders to goods, capital and people. Central banks, preoccupied with the gold standard and balance-of-payments considerations, let the money supply shrink. Economic nationalism and misery helped bring about the most destructive war — actual war, not some headline-writer’s metaphor — in history.

Happily, the post-2008 period has been profoundly different. We have seen much less protectionism. Many countries, Canada among them, are actually liberalizing. While growth has been slower than hoped, living standards for most people in the world are still rising. A key reason for the lower price of oil is expanding supply, and more abundant energy is a good thing. We’re still trading with, not shooting at, each other.

As for currency wars, they don’t mean live winners and dead losers. A country that wants a lower exchange rate just has to create more of its own currency, increasing supply relative to demand so that its price in foreign currencies falls. If it goes too far, and an over-rapid increase in the supply of currency pushes its domestic value down, then the losers are its own citizens, who suffer from inflation.

Yes, inflation — which is why fears about deflation and currency wars are too much of a bad thing. They can’t both be right. Much of the talk about competitive devaluations comes from the United States, and no wonder. The U.S. dollar is on a tear — up against everybody else — so from the U.S. perspective, everybody else looks low.

So suppose the U.S. Federal Reserve reacts to the currency’s strength with monetary policy that is easier than it would have been otherwise. That will make U.S. inflation likelier to get back to the 2% range the Fed wants. And if, say, the European Central Bank doesn’t like the Euro’s resulting rise against the U.S. dollar? It will ease as well — which will make prices in the Eurozone likelier to start rising.

At this point, the relentlessly dire headline writer might turn to Japan. Doesn’t two decades of Japanese stagnation prove that you can’t fight deflation with the printing press? Not at all: after years of holding back, the Bank of Japan has become more aggressive. The Yen is weaker, down almost 20% against the U.S. dollar in the past year. And during that time, Japanese consumer prices are up 2.4% – an increase bigger than changes in sales taxes can explain. No deflation there.

Not everything is rosy in the world economy. But dire headlines about deflation and currency wars together are, simply, too bad to be true. Doomsayers should pick their disaster. For the rest of us, maybe there’s no disaster at all.

It has become something of a tradition. Every three months, Statistics Canada announces that Canadians are getting richer. This news is duly transformed by the media into alarming stories about how Canadians are falling deeper into debt.

It was funny the first couple of times, but it’s getting past a joke. Dwelling on liabilities and giving short shrift to what’s happening on the asset side of the household sector balance sheet is almost certainly misleading people into believing that Canadians are getting steadily poorer, when in fact the opposite is true.

We all know by now that Canadian household debt-to-income ratios have been rising. In 2000, household debt was about 100% of disposable income (that is, income after taxes and transfers). This ratio has since increased by 60 percentage points and is now just above 160% of income.

It is less well known that asset holdings have increased even faster. Assets were 700% of income in 2000 and are now 900%. The net result is that household net worth has increased by 140% points of disposable income over the past 14 years. Notwithstanding the increase in debt, the Canadian household sector has become significantly wealthier over the past 15 years.

Increasing debt loads are not in themselves a sign of deteriorating household finances, especially when interest rates are falling. The demand for loans works like the demand for everything else: When the costs of borrowing decreases, people borrow more — and use the proceeds to purchase more assets. Higher debt-asset ratios are what we’d expect from lower interest rates.

Here the standard riposte is: What happens when interest rates start to rise above their current low levels? This question requires some unpacking, because everything depends on the reason why the interest rates would be increasing in the first place. For example, suppose that interest rates go up because monetary policy is being tightened. But the Bank of Canada won’t arbitrarily increase interest rates; it will wait until inflationary pressures are firmly established.

In other words, the conditions in which the Bank of Canada will increase interest rates are exactly the same as the ideal conditions for paying down debt: stronger economic growth and a rate of inflation that reduces real debt loads. It won’t be completely painless, but that’s the point: a contractionary monetary policy is supposed to have contractionary effects.

What about the possibility of another economic crisis? Financial markets have still not completely recovered from the events of 2008-09, and there’s no shortage of explanations as to how another financial market meltdown could come about (coming up with crisis scenarios has become something of a cottage industry). Shouldn’t Canadian households be reducing their leverage ratios — or at least, stop increasing them — just in case?

The answer to this is a) they probably should, and b) they already have. Although debt-income ratios have increased since 2009, they have done so much more slowly than in the previous 10 years. Asset holdings have grown more quickly, resulting in a deleveraging of the household sector’s balance sheet.

Debt levels were about 15% of assets in 2000, and this ratio increased to 17% when the financial crisis hit. The resulting collapse in asset prices — including house prices — pushed that ratio above 20%. But since then, households have been steadily deleveraging: household debt was down to 18% of assets in 2014. (All figures here are taken from Statistics Canada’s Cansim Table 378-0121.)

Debt service ratios are another indication of Canadian households’ post-crisis prudence when it comes to borrowing. Here it’s worth making a comparison with the behaviour of pre-crisis U.S. households, if only because it’s the template that people have in mind when thinking about recent Canadian borrowing.

U.S. debt service ratios increased during the 2000s housing boom. This made some sort of sense so long as house prices continued to increase, but it led to disaster after housing prices peaked. The subsequent wave of mortgage defaults was the proximate cause of the subsequent financial crisis.

Pre-crisis debt-service ratios also rose in Canada, albeit later than in the U.S. and from a lower base. Canada was lucky that the recession happened when it did: if the trend toward higher debt service ratios had continued for a few more years, our experience of the financial crisis would have been much more severe.

Canadians seem to have been spooked by this near-miss: They have since whittled away debt service ratios to record low levels. Let’s say that again: debt service ratios are at record low levels. It looks as though households are making room in their personal finances in case there’s a spike in the costs of carrying their debt.

Obviously, it would be going too far to say that there are no risks; some Canadians have doubtlessly exposed themselves to unhealthy levels of debt. But it’s a mistake to focus on the liabilities side of the household sector balance sheet and conclude that Canadians are sleepwalking to disaster.

Unions representing federal public servants are up in arms over the government’s plans to do credit checks of new and current public servants as part of its revamped security clearance screening process.

In an email, Treasury Board spokeswoman Lisa Murphy confirmed that mandatory credit checks are part of the government’s new standard on security screening that came into effect last Oct. 20.

“An assessment of the trustworthiness and reliability of all individuals accessing sensitive information and/or assets must be undertaken to protect the interests and security of the government of Canada,” Murphy said.

“A credit check will be reviewed as part of that assessment, in addition to other information to assist in assessing an individual’s reliability and trustworthiness.”

That other information could include fingerprints. A criminal record check is part of the new assessment and “may include an RCMP requirement to obtain the individual’s fingerprints if deemed necessary by the functions of the position,” Murphy said.

According to one source, who likened the new screening policy to a “gun registry for public servants,” RCMP Commissioner Bob Paulson sent a letter in January to all government departments and agencies informing officials that all future security checks will require fingerprinting. The RCMP did not respond to Citizen questions about Paulson’s letter.

The new security screening measures were adopted at a time of heightened security concern. By coincidence, they came into effect the same day that Martin Couture-Rouleau ran down and killed Canadian soldier Patrice Vincent and two days before Michael Zihaf-Bibeau stormed Parliament Hill after killed a sentry at the National War Memorial.

The new policy has alarmed the two main unions that represent federal public servants: the Public Service Alliance of Canada and the Professional Institute of the Public Service of Canada.

PSAC president Robyn Benson issued a statement expressing concern that the credit checks “will be an unwarranted gross violation of personal privacy” that could put people’s livelihoods in jeopardy without cause.

“We are also fearful that the policy could be applied in an arbitrary way,” Benson said.

Meanwhile, PIPSC president Debi Daviau said her union is very concerned about the “invasive nature” of the government’s new security policy.

“The fingerprinting of employees who haven’t any criminal record is particularly troubling and, given this government’s addiction to the outsourcing of IT services, a major privacy breach waiting to happen,” Daviau said in an interview. “How does the government propose to protect the private information of its own employees?”

Patrick Doyle / Ottawa CitizenPresident of the Professional Institute of the Public Service of Canada Debi Daviau poses for a photo at the annual general meeting of the Professional Institute of the Public Service of Canada at the Delta Hotel in Ottawa on Saturday, November 8, 2014

PIPSC has filed six policy grievances on behalf of different employee groups it represents in response to the new screening procedures.

The grievances allege that the new procedures will result in an “impermissible breach of privacy” in violation of collective agreement clauses that oblige the employer to respect the Privacy Act and section seven of the Charter of Rights, which guarantees the right to life, liberty and security of the person.

PIPSC is also grieving the failure of the employer to consult the union prior to introducing and implementing the new screening standard.

It wants the standard revoked until proper consultation takes place and is seeking an order prohibiting the reintroduction of any elements that are determined to be “overly privacy invasive.”

The new screening standard replaces a policy that had been in effect for more than two decades. Administered by Treasury Board, it applies to new hires by virtually all federal departments and agencies as well as current employees whose security status changes or is renewed.

Treasury Board’s Murphy said the new policy standardizes security screening processes across all departments and agencies to ensure “consistent and fair screening practices.”

She said the information gathered during security screenings will be protected by the provisions of the Privacy Act, which lays out how federal departments and agencies should handle personal information. The Office of the Privacy Commissioner of Canada oversees compliance with the act.

The new policy says security screening is “a fundamental practice that establishes and maintains a foundation of trust within government, between government and Canadians, and between Canada and other countries.” A valid security status or security clearance is a condition of employment with the federal government.

One of the screening activities described in the policy is “financial inquiry,” done to assess whether an individual poses a security risk “on the basis of financial pressure or history of poor financial responsibility.”

It says financial inquiries include, as a minimum, a full consumer credit report from a credit reporting agency, providing information on an individual’s credit history, liens, judgments and bankruptcy. It does not include a credit score, the policy says.

As part of the screening process, the RCMP is responsible for maintaining a national repository of criminal history records and using it to see whether an individual has a criminal record. The Canadian Security Intelligence Service (CSIS) is responsible for conducting appraisals of reliability and loyalty to Canada.

The new policy says personal information collected on security screening forms will be disclosed to security screening service providers in government, such as the RCMP and CSIS, and some outside government, such as credit bureaus, “in order for the verifications, inquiries and assessments required for security screening to be conducted.”

The policy lays out three different levels of security screening.

One is reliability status screening, which must be conducted for everyone employed by or working in federal departments and agencies. Enhanced screening is required for those with reliability status who perform security and intelligence functions or duties that support those functions.

Another is secret clearance, which builds on reliability status screening and is conducted for positions requiring frequent and unsupervised access to government information, assets, facilities or IT systems categorized as secret.

The third, top secret clearance, is reserved for those with frequent and unsupervised access to top secret information, assets, facilities or IT systems.

Screening for reliability status and secret clearance must be renewed every 10 years. For top secret clearance, renewal is necessary every five years. Those who work for companies that win government contracts also need to undergo screening to obtain site access clearance, which can be valid for up to 10 years.

While those applying for security clearance must provide consent for the collection and disclosure of their personal information, those who refuse would likely lose their security status or clearance, which could result in termination of employment or cancellation of a contract.

Sen. Pamela Wallin allegedly fabricated meetings, charged taxpayers for flights and travel related to her work on corporate boards, and misrepresented many of her trips to Toronto even when confronted by external auditors, the RCMP allege in newly released court documents.

In all, the RCMP allege Wallin defrauded taxpayers of almost $27,500 for 25 trips made between 2009 and 2012. Investigators allege Wallin should have charged expenses to two private companies because the trips were part of her work as a director on the boards of Porter Airlines and wealth management firm Gluskin Sheff & Associates.

Instead, the RCMP allege Wallin charged them to the Senate, writing them off as “Senate business,” without providing any further explanation.
Wallin, the RCMP allege, committed fraud and breach of trust.

Wallin has not been charged with any crime, nor have any of the allegations against her been tested in court.

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“Senator Wallin used public funds to travel to Toronto in order to pursue these private and business interests,” RCMP Cpl. Rudy Exantus wrote in a court document, known as an information to obtain, dated Jan. 29. The Ottawa courthouse released the document Monday.

“Senator Wallin, when confronted by an external audit, misrepresented the nature of these trips to Toronto, and at times, fabricating meetings which the RCMP was able to determine (through interviews) to have never taken place. In doing so, I believe that Senator Wallin breached the standard of responsibility and conduct demanded of her and by the nature of her office.”

The RCMP now have more details on 13 events investigators allege were part of her private business interests on the board of Gluskin Sheff & Associates, but came up empty when they went looking for details on 11 events associated with her work at Porter. The details are in two documents filed in court Monday.

An employee at Porter Airlines told investigators in an affidavit on March 2 that the company was “not in possession of any of the items sought.”

The details are a small sample of what the RCMP describe as 150 suspicious expense claims that Wallin submitted to the Senate, which investigators continue to pore through as part of a probe that has lasted more than a year and a half and appears more technical than Sen. Mike Duffy, who faces 31 criminal charges.

The investigation into Wallin’s questionable travel has seen investigators sort 246 travel expense claims Wallin filed with the Senate and then check those against dozens of versions of her Senate calendar between 2009 and 2013, including annual and monthly backups; sifting through 101 changes to the calendar made that disappeared, and then reappeared, near the end of Wallin’s Senate audit; reconciling printed versions of her handwritten personal calendar with the electronic Senate calendar; and interviews with dozens of people in the Senate and those Wallin met with in each of the expenses under scrutiny.

Income inequality has gone from being a niche field in economics to one that makes headlines and is the subject of best-selling books. Notwithstanding the obvious political overtones of the subject, this surge in interest is largely data-driven: The basic facts of the income distributions in Canada and in other industrialized countries have changed dramatically in the past few decades. But these changes manifest themselves in different ways, and pose different policy challenges. Referring to them all collectively as issues of “income inequality” can lead to debates in which the participants talk at cross-purposes.

These are some common elements, of course: they derive from the fact that we don’t all receive the same income. This isn’t in itself a problem that needs solving: some income inequality is to be expected, and is indeed desirable. Higher wages are a compensation for the costs of acquiring certain skills and are the market’s way of signalling where labour is in short supply. If all differences in income are fair — or are seen to be fair — inequality is not a problem.

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But they aren’t, and it is. And in a democracy, it’s not particularly helpful to point out that life isn’t fair. A functioning democracy requires a minimal level of social cohesion, and widening income inequalities put that cohesion at risk. It’s hard to obtain support for policies that serve the public good if people don’t think the public good is in their interest. The HST referendum in British Columbia offers a prosaic, if telling, example. UBC’s Kevin Milligan — who helped the campaign supporting the HST — has noted that public opinion polling showed that B.C. voters generally accepted the point that the HST would have been beneficial for the B.C. economy. The problem was that too many voters didn’t think they would see any of those benefits.

These are common themes, but actually addressing them requires unpacking these generalities. There are at least three conceptually distinct aspects to income inequality, as well as two related issues. Since no one has yet come up with a silver policy bullet that can solve them all simultaneously, it’s worth taking the time to make these distinctions.

Poverty and the incidence of people with low incomes is an obvious place to start, if only because it has historically been the focus of attention in discussions of income inequality. At its most basic level, the policy is to provide a minimal standard of living. In a country as rich as Canada, no one should be deprived of the basics of life, regardless of the circumstances. It’s easy to obtain agreement on this point, but not so easy to obtain agreement on how to define the “basics of life.” Measures of absolute poverty are based on estimates for the minimum income necessary for a basic level of subsistence. But if social cohesion is put at risk by the establishment of an underclass whose incomes stay fixed even as purchasing power increases in the rest of the population, then perhaps a measure of relative poverty — that is relative to the incomes in the rest of the population — is appropriate.

Statistics Canada publishes two main measures of low income (they are careful to not use the term “poverty line,” but they do not object if others interpret them in that way). The Low-Income Cut-Off (LICO) is a measure of the absolute poverty line, based on a basket of goods established in 1992. The Low Income Measure (LIM) sets the poverty line in proportion of the median income. If poverty in Canada doesn’t make the headlines it made 20 years ago, the explanation is fairly simple: the situation has — depending on how you look at it — improved or at least stabilized. The incidence of people below the LICO has fallen sharply in the past couple of decades, while the proportion of those below the LIM has remained stable. There are variations in the levels depending on the groups you look at, but they generally share these trends. (And no, I’m not saying that poverty is no longer a problem. I’m saying it doesn’t get the attention it used to.)

Moving up the income distribution, the next issue is what I call “first-order” inequality, because it directly affects the most people and it shows up in the main measures of central tendency: the mean and the median. This is distinct from poverty, because there are relatively few people with low incomes and they don’t earn very much: variations in the lower tail don’t significantly affect the basic shape of the income distribution. First-order inequality shows up as a widening in the gap between average and median incomes and as an increase in the Gini index of inequality. (The Gini index is equal to 0 if everyone has the same income, and is equal to 1 if only one person has all the income.)

Average household incomes stagnated over the 20 years between the mid-1970s (when Statistics Canada’s data start) and the mid-1990s. This stagnation was made worse by an increase in first-order inequality. The Gini coefficient increased, and the gap between median and average incomes grew wider: median incomes were 90% of average in 1976, and this ratio fell to 75% by 2000. Since average incomes were roughly constant, increasing first-order inequality meant that median incomes fell. Since 2000, the Gini index has levelled off, and the ratio of median and mean incomes has stabilized. Median incomes have been increasing along with the average, but not yet enough to completely recover previous losses: Median incomes are still below what they were 40 years ago.

Even though first-order inequality has stopped increasing, it plateaued at a level significantly higher than what it was 30 years ago

Other industrialized countries have seen similar patterns: their Gini coefficients also increased during the 1980s and 1990s and have also levelled off since then. This across-the-board pattern suggests that these changes were not policy-induced; more plausible explanations would be based on the changes in technology and trade that have affected all economies. Even though first-order inequality has stopped increasing, it plateaued at a level significantly higher than what it was 30 years ago.

Lastly, top-end inequality involves the concentration of increasing amounts of income among a small number of high earners — the “1%.” Since this phenomenon affects only a fraction amount of the population, it doesn’t show up in the Gini index. The distinction between top-end and first-order inequality is important to keep in mind. Firstly, they almost certainly have different explanations: While increases in first-order inequality were observed everywhere, top-end concentration was largely limited to English-speaking economies and especially the United States. Secondly, they have different timing: First-order inequality levelled off in the 1990s even as top-end inequality continued to increase. It’s also worth pointing out that the share of Canadian income going to the top end of the distribution has been falling in recent years, even as it continues to increase in the United States.

These three notions — poverty, first-order inequality and top-end concentration — all have their own features in the data, have different origins and pose different challenges. Although there are obvious links, broad statements such as “income inequality is getting worse” or “income inequality is getting better” should be accompanied by some sort of qualification about which aspect is being discussed.

It’s even more important to make the distinction between inequality in wealth — especially financial wealth — and income inequality. Economists make a big deal about making the distinction between stock variables such as wealth and flow variables such as income, and for good reason. Wealth is the result of accumulated savings (this may include the savings of your parents), so the link between income and wealth depends crucially on how old you are. In a population where everyone had the same income, you’d still see significant variations in asset holdings: older people would have saved more, and younger people would have zero or negative financial wealth. Measures of wealth inequality have to be taken with a large grain of salt.

Finally, there’s the question of social mobility. People may be willing to overlook a high level of income inequality if it is widely believed that you (or your children) have a fair chance of entering the economic élite. Put another way, people may be more concerned about equality of opportunities than they are about equality of outcomes. But you can’t completely ignore income inequality even if your primary concern is equality of opportunity. This point is made most dramatically in the “Great Gatsby Curve” identified by the University of Ottawa’s Miles Corak: countries with higher income inequality have lower social mobility. It turns out that Canada has done relatively well as far as social mobility goes; the challenge will be to maintain that performance in the future.

Although the policy agenda may be driven similar themes — fairness, social cohesion and so forth — the debate about income inequality is actually a collection of debates, each based on a specific problem based on a specific set of data.

National Post

Stephen Gordon is professor of economics at Laval University.

]]>http://news.nationalpost.com/full-comment/stephen-gordon-what-is-income-inequality/feed/1stdQuestion_Period_20150127CO0310_LowIncome_C_JRfbCO0310_GiniIndex_C_JRCO0310_TopOnePercent_C_JRStephen Gordon: Too often, building public infrastructure is simply not the best way to invest moneyhttp://news.nationalpost.com/full-comment/stephen-gordon-too-often-building-public-infrastructure-is-simply-not-the-best-way-to-invest-money
http://news.nationalpost.com/full-comment/stephen-gordon-too-often-building-public-infrastructure-is-simply-not-the-best-way-to-invest-money#commentsMon, 02 Mar 2015 21:05:56 +0000http://news.nationalpost.com/?p=710171

Although details are still sketchy, public spending on capital projects looks to play a major role in the Liberal policy platform as we head into the federal election. This isn’t exactly a wedge issue: Everyone agrees that infrastructure brings benefits. But this general consensus can lead to some sloppy thinking, along the lines of the Politician’s Syllogism: “We must build infrastructure; this is infrastructure; therefore, we must build this.” This seductive line of reasoning can end up in disaster — remember the Mirabel Airport? The economics of public infrastructure are more subtle than that.

Building infrastructure brings benefits, but it also incurs costs. This may seem like an obvious point, and it is. But a lot of what passes for public debate on the issue either ignores the costs or presents them costs as additional benefits. And the benefits may not be something that the government should be providing.

The core business of government is to provide public goods — but that doesn’t mean that something is a public good because the government provides it. In the jargon of economics, public goods meet two criteria. Firstly, their benefits have to be “non-rival”: they can be enjoyed by any number of people without being diminished. The other is that it’s not possible to control access: the benefits must be “non-excludable.” It falls to the governments to provide public goods, because private suppliers will not be able to recover their costs.

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The first question to ask of a public infrastructure project is whether it’s a public good. This is not an easy test to pass: Bridges, highways, and — despite what the FCC says — the Internet are not pure public goods. It’s possible to restrict access to those who pay for it, and even though they are at least partially non-rival — several people can use them at once — their usefulness declines as they become congested. To the extent that infrastructure provides private benefits, it should be privately-funded.

On the other hand, these sorts of projects are usually not purely private, either: Some of the benefits spill over to the general population. For example, a new bridge between Windsor and Detroit would reduce delays for everyone crossing the border, not just those who use the new bridge. But even if some of the benefits of infrastructure are public, it doesn’t follow that governments should pay all the costs.

Of course, this is not how Canadian governments have historically handled funding for infrastructure: They invariably have covered the entire costs and have eschewed user fees and tolls. So whenever comparisons are made to past levels of spending, the likelihood that previous governments were overpaying for the public benefits of infrastructure should be kept in mind.

Listing jobs created as a benefit instead of a cost is a popular mistake, but it’s still a mistake

But any misunderstanding there may be about the public benefits of infrastructure pales in comparison to the misunderstanding of their costs. Politicians are fond of pointing out that building infrastructure creates jobs: Liberal finance critic Scott Brison made this point in the National Post a few weeks ago. But when it comes to public infrastructure, jobs are costs. Everything else being equal, a project that requires 1,000 people to build it is more expensive than one that requires only 100 workers. Materials purchased from suppliers and salaries paid to workers and may be a private benefit for them, but they are a public cost. Listing jobs created as a benefit instead of a cost is a popular mistake, but it’s still a mistake.

It is at this point that people start to talk about multipliers, and how spending on infrastructure spills over to increase output and employment in other sectors. You see a lot of studies making this claim, often commissioned by the people for whom infrastructure spending is a private benefit. The problem is that these studies consider only the positive spillovers generated by the spending on infrastructure, and not the negative spillovers generated by the costs of financing it. Productive resources allocated to building infrastructure are productive resources that are unavailable for other uses. It’s easy to show that spending in one sector generates spillovers elsewhere; it’s much harder to show that these spillovers are larger than what they would have been for any other alternative.

Much of the Liberal message — in particular, the urgency with which the case is presented — appears to have been imported from the U.S. context

Another multiplier story might be that regardless of the merits of a given infrastructure project, public spending in itself acts as a fiscal stimulus. This is rarely a compelling argument for Canada. In a small, open economy with a flexible exchange rate — that is to say, an economy like Canada’s — fiscal policy is largely ineffective. The increase in spending leads to an exchange rate appreciation, and the resulting fall in net exports offsets the gains from the fiscal expansion. The heavy lifting of the Canadian recovery was done by the sharp depreciation of the dollar and the boost it gave to net exports; the turning point of the recession occurred months before any of the stimulus package was spent. (This doesn’t mean it was a mistake; think of it as our contribution to the global recovery program.)

Much of the Liberal message — in particular, the urgency with which the case is presented — appears to have been imported from the U.S. context; Larry Summers’ arguments for more U.S. infrastructure spending are frequently quoted. And his arguments are quite compelling — for the U.S.. The U.S. didn’t have a Canada-style stimulus program during the recession; U.S. public investment has fallen over the past few years. And since the U.S. economy is much less influenced by the outside world than is Canada’s, fiscal policy still retains much of its potency. But Canada is not the United States: Different facts and different contexts require different arguments.

None of this to say that increased infrastructure spending is necessarily a bad idea; there may be many new projects that would pass a careful examination of its costs and benefits. But the decisions should be made on a case-by-case basis, and not because the government has committed itself to a general promise to spend more on infrastructure.

National Post

Stephen Gordon is a professor of economics at Laval University.

]]>http://news.nationalpost.com/full-comment/stephen-gordon-too-often-building-public-infrastructure-is-simply-not-the-best-way-to-invest-money/feed/0stdconstructionDon Braid: Armageddon Interruptus — Alberta the only place where a budget surplus is bad news for the governmenthttp://news.nationalpost.com/full-comment/don-braid-armageddon-interruptus-alberta-the-only-place-where-a-budget-surplus-is-bad-news-for-the-government
http://news.nationalpost.com/full-comment/don-braid-armageddon-interruptus-alberta-the-only-place-where-a-budget-surplus-is-bad-news-for-the-government#commentsWed, 25 Feb 2015 19:14:35 +0000http://news.nationalpost.com/?p=706829

Oops. In the midst of all the doom-laden political talk, we have a strange moment of Armageddon Interruptus.

The provincial government is suddenly forecasting a surplus of $465 million for the 2014-15 fiscal year ending March 31.

Only six weeks ago, on Jan. 8, Premier Jim Prentice predicted a deficit of $500 million.

“Things have turned so dramatically that we’ve gone from a $1.5-billion surplus in November to what looks like a $500-million deficit based on today’s projections,” he said.

The short journey from deficit to surplus represents a rounding error of nearly $1 billion. Not quite what you’d expect from an ex-banker.

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This isn’t just embarrassing for the government. It’s also politically damaging, because it blurs the message of fiscal disaster and sacrifice we’re hearing every day.

In fact, it’s the only case I can recall where a budget surplus is actually bad news for the government.

Opposition parties pounced immediately.

“The fact that the province is still forecasting a surplus shows Alberta’s economy is more resilient than the provincial government wants us to believe,” said Alberta Party Leader Greg Clark.

He says the PCs are predicting doom in order to look good when the numbers prove to be much better.

Another view is that Prentice was simply caught by the very volatility he’s so worried about.

As the oil price fell, the dollar chugged along at about 85¢ — kind of stuck there, says Finance Minister Robin Campbell.

But then it quickly dropped to about 79¢. Each penny of lost value means $241 million more revenue for the treasury. That swing alone brings about $1.4 billion over the course of a year — more than the premier’s error.

Investment income was also higher than expected. The price difference between bitumen and West Texas oil narrowed somewhat.

Nobody expects a quick return to $100 oil. The province predicts that 31,800 jobs will be lost between February and December. The danger to the housing market is obvious.

But just as Alberta was never the economic driver of the western world, neither is it suddenly a basket case to rival Greece. A little more optimism would be welcome.

There wasn’t much of that from Campbell as he released third-quarter financials. Rather than trumpet the surplus, he said it “could disappear in a heartbeat.”

He then deepened the gloom by saying the revenue shortfall will be $7 billion in 2015-16 and “possibly larger in future years.”

I’m not going to forecast the price of oil — I’ve given up on that

That’s an escalation. Previously, the premier and the minister have talked about $5 billion or $6 billion in later years. Now it’s $7 billion all the way. Questioned about this, Campbell wasn’t so certain about later years.

He also made a striking comment that would surely draw a sympathetic nod from every past Alberta finance minister, living or dead.

“I’m not going to forecast the price of oil — I’ve given up on that.”

The problem is that the oil price will be the key budget number as long as royalties pay for program spending. And the forecasts are always wrong, even over short time spans.

The government now predicts “U.S. $44 average for the remainder of the fiscal year.” But West Texas crude has been $5 above that for some time now, which suggests the $465 million surplus could be even higher by March 31.

As all this was sinking in Tuesday, word came out that OPEC could call an emergency meeting to deal with huge financial losses faced by producing countries.

If the Arab states can be pressured into cutting production, prices could shoot up and the whole Prentice agenda would look shaky overnight.

The premier seems genuinely determined to move Alberta away from this dizzy dependence on oil prices. And that creates, in turn, this peculiar government appetite for bad news.

Canadians like to brag about the strength of our country’s public finances. But a cursory look at government debt reveals that the provinces owe a striking amount of it. This is worrying, as provinces are far more vulnerable to the whims of bond markets than the federal government.

To date, however, it hasn’t impeded the provinces’ ability to borrow. Interest rates are low and the major rating agencies forecast virtually zero probability of a provincial default.

Many warn these conditions will not last: Interest rates will rise and the provinces will be forced to hike taxes and slash spending. In truth, a credit crisis is unlikely in the short term. But who’s to say Ottawa won’t have to come to one of the province’s rescue at some point in time?

Stephen Gordon raised this concern last week in his column on lessons from the Greek debt crisis. Canada is no Greece, but the challenges of managing government debts in a currency union raise uncomfortable parallels between Canada and the beleaguered eurozone. Gordon urges Canadian governments to get ahead of the curve by establishing ground rules for provinces to follow in the event of a credit crunch.

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But what should these rules look like? Experts in this area generally have a couple of scenarios in mind. One idea is that Ottawa could turn provinces over to the bond markets. It would declare a no-bailout policy and signal its willingness to let provinces default. Risk premiums on provincial bonds would rise and provinces — under the pressure of higher rates — would be forced to adjust.

This strategy isn’t credible. Ottawa might say it’s willing to let a province default, but would it really? Gross provincial debt is roughly 50% of GDP (the highest of any group of sub-national governments in the Organisation for Economic Co-operation and Development). A missed bond payment would send Canadian bond markets into a tailspin.

And we should be thankful that a no-bailout policy isn’t credible. It might limit provincial borrowing, but it would do so at the risk of inviting self-fulfilling defaults. Spain learned this the hard way in 2012 when the biggest threat to national solvency was not excessive debt levels, but exorbitant risk premiums or fear of insolvency itself. The federal government never has to worry about this. It’s assumed the Bank of Canada would print money in the event of a federal repayments crisis. But it’s not clear whether this commitment extends to the provinces. Ottawa’s implicit guarantee is the provinces’ best defence against market hysteria.

Ottawa could, in theory, stake out a middle ground by making the guarantee explicit, but putting strict conditions on any potential bailout. This strategy would limit market panic and if Ottawa’s conditions are sufficiently demanding, it would prevent excessive borrowing as well. But if a bailout does occur, Ottawa would have incentives to soften its terms and provinces would recognize this; incentives to borrow would persist.

Clearly, it’s dangerous to let implicitly guaranteed governments borrow money. The temptation to over borrow and put other governments at risk is too great. This is why most federations restrict sub-national borrowing in one form or another.

Unfortunately, Canada is not likely to adopt such a model. It emerges in states of distress when central governments trade bailouts for fiscal rules. These negotiations aren’t going to happen as long as the provinces borrow at affordable rates.

And it’s not obvious, even if provinces were on the brink, whether centralization would occur. Provinces are protective of their sovereignty and Ottawa lacks the ability to restrict it. This was illustrated in 1935 when Alberta chose to default rather than to accept the supervision of a national loans council.

Granted, times have changed. Incentives to repay bondholders are higher. It’s likely Ottawa and the provinces would strike a deal. But would it involve meaningful borrowing limits?

The Eurozone may be instructive. It has managed to impose harsh conditions on Greece. Why couldn’t Canada, a more centralized currency union, do the same? The answer is surprisingly simple: Europe’s paymasters are sovereign states. While German politicians have no incentive to soften a recipient’s bailout terms, federal politicians in Canada do have one: the support of provincial voters.

This isn’t all bad. Greek austerity is excessive and politically unsustainable. But Ottawa’s inability to impose any meaningful discipline is worrying.

We have to think harder about managing provincial debts. Last week, in our report on the risk of a provincial debt crisis in Canada, the Mowat Centre recommended the adoption of a neutral council for assessing federal-provincial transfers. The proposed council could support provincial finances in several ways, including ensuring that transfers are consistent with principles of fiscal discipline and that Ottawa provides provinces with sufficient countercyclical fiscal support.

Of course, this is only a partial solution. We have a long way to go in our thinking about how to manage our provincial debt problem. And so, while Canada won’t be laying out rules for the provinces any time soon, Stephen Gordon’s call to action is a welcome one.

]]>http://news.nationalpost.com/full-comment/kyle-hanniman-what-if-a-province-goes-the-way-of-greece/feed/0stdsousaStephen Gordon: Job creation is not very high on Canada’s list of problemshttp://news.nationalpost.com/full-comment/stephen-gordon-job-creation-is-not-very-high-on-canadas-list-of-problems
http://news.nationalpost.com/full-comment/stephen-gordon-job-creation-is-not-very-high-on-canadas-list-of-problems#commentsMon, 23 Feb 2015 22:31:54 +0000http://news.nationalpost.com/?p=704880

We’re going to hear a lot about job creation over the months leading up to the election. Of course, we’d hear a lot about job creation even if an election wasn’t on the line: When politicians talk about an economic policy, they invariably dwell on its effects on employment. This focus probably makes sense in terms of electoral strategy, but there’s more to economic policy than jobs. And right now, job creation is not very high on our list of problems.

The trend-cycle distinction is useful here. In the short term, month-to-month changes in employment largely consist of statistical noise and are an unreliable basis for making policy. In the medium term — horizons of five years of so — the business cycle drives fluctuations around the long-term trend. Policies that are effective for dealing with recession-induced drop in employment don’t improve long-term trends in job markets — and vice-versa. But as things stand now, job creation isn’t a priority neither in terms of the business cycle nor in terms of the long term.

The business cycle first. Statistics Canada’s estimate for the unemployment rate in January 2015 is 6.6%. This is lower than it’s been in 40 years, with the exception of the pre-crisis period 2006-08. In hindsight — these things are never obvious at the time — those years were exceptional. According to both the Bank of Canada and the IMF, the Canadian economy was operating significantly above capacity during 2006-08: world GDP was booming, and oil prices were in the stratosphere. Using the pre-crisis years as a point of reference is setting the bar pretty high.

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But the more important point has to do with demographics. Between 1965 and 1995, the Canadian population increased by about 50%. If employment had grown in proportion to the population, there would been about 10.2 million more people working in 1995. As it happened, actual employment in 1995 was 13.3 million.

Two things happened in the mid-1960s. The first was the arrival of the baby boom generation on the job market. Even as Canada’s population increased by 50% between 1965 and 1995, the number of people between the ages of 15 and 64 increased by 70%. Moreover, the “prime” cohort of those aged 25-54 — the group with the highest labour force participation — increased by 90%. By 1995, an extra 1.9 million jobs were required simply to maintain the employment rates observed in 1965.

Even that wouldn’t have been enough, because the other thing that happened was the increase in female labour force participation rates. This added an additional 1.1 million workers to the workforce by 1995.

The challenge of absorbing three million extra workers into a workforce of ten million explains why policy-makers and voters would be so focused on job creation for so long. But things have changed over the past 20 years, and will change even more drastically in the next 20 years.

Women’s participation rates had not yet plateaued in 1995, but they appear to have done so since then. The young women who entered the workforce in the 1970s have reached retirement age, and the participation rates of younger female cohorts have stabilized. This means that future changes in the size of work force are going to be mainly driven by changes in the age structure of the population.

By 1995, the baby boom generation had been fully incorporated into the workforce, and the much smaller “baby bust” generation — to borrow David Foot’s expression — had entered the job market. The growth rate of the prime 25-54 cohort slowed, and its share of the workforce peaked in 1996. The baby boom started aging out of the prime age workforce more than 10 years ago, and the leading edge is already of retirement age.

The predictions are now being transformed from future scenarios into current facts

None of this is new: demographers and economists have been making these predictions for decades. What is new is that the predictions are now being transformed from future scenarios into current facts. Take, for example, the widely reported story that Statistics Canada recently revised an increase in employment of 185,000 during 2014 to an increase of only 125,000. This was widely viewed as evidence that the labour market had been weaker than we had thought. But this is the wrong way to look at it: estimates for features such as employment rates and unemployment rates remained unchanged. According to both the revised and unrevised data, the unemployment rate fell during 2014. What had changed were the population estimates. According to the old data, 185,000 new jobs would have been required to bring the unemployment rate down. But with the lower, revised population estimates, the same reduction in unemployment rates could be obtained with fewer new jobs.

The number of people between the ages of 15 and 64 is falling in every province east of the Ottawa River; the prime-age population had started falling there years ago. For Canada as a whole, the 15-64 population continues to grow, but only because of the increase in those aged 55-64; the number of people between the ages of 15 and 54 peaked a few months ago.

This changes — or at least, it should change — how we look at the challenges facing the labour market. For example, the problem of youth unemployment is likely to solve itself fairly soon: the 15-24 population is falling at a rate of 3,000 people per month.

It used to make sense to put job creation at the top of the list of policy priorities. But in an economy where there are fewer people of working age, the challenge now will not be to find them a job. It will be to make sure that they have the equipment, technology and skills to generate the most income possible.

National Post

Stephen Gordon is a professor of economics at Laval University.

]]>http://news.nationalpost.com/full-comment/stephen-gordon-job-creation-is-not-very-high-on-canadas-list-of-problems/feed/1stdCalgary_job_fair_cal0818-dbc-2Pan Am has spent 80 per cent of capital budget ahead of games set to begin in Julyhttp://news.nationalpost.com/news/pan-am-has-spent-80-per-cent-of-capital-budget-ahead-of-games-set-to-begin-in-july
http://news.nationalpost.com/news/pan-am-has-spent-80-per-cent-of-capital-budget-ahead-of-games-set-to-begin-in-july#commentsFri, 13 Feb 2015 17:47:07 +0000http://news.nationalpost.com/?p=699257

Organizers for this summer’s Pan Am Games in Ontario say they’ve spent 80 per cent of their capital budget so far, with roughly five months to go before the international competition begins.

Canadians have had some time to adjust to the Bank of Canada’s surprise cut in its policy interest rate to 0.75% on Jan. 21. With the Bank’s next interest-rate announcement coming on March 4, now seems a good time to take stock of what the January cut in the overnight rate target meant, and what the Bank of Canada might, and should, do next.

January’s cut shocked financial markets. After more than four years with the policy rate at 1.00%, most of us expected its next move to be upward. The Canadian dollar closed down a cent and a half on the day. Analysts put the Bank’s accompanying Monetary Policy Report under their microscopes. Noting, for example, that the economic commentary was more upbeat than the rate cut implied, some revived the notion that Governor Steve Poloz likes a low dollar. Others criticized the Bank’s language about risks and insurance, underlining the potential spur of lower borrowing costs to credit-crazy consumers.

Looking through the complexity of modern central bank communications, though, the January interest rate cut may best be seen as getting back to basics. The Bank of Canada targets inflation. Inflation targets are an admirable goal for monetary policy – in fact, if the Fed had used one, the bubble and crisis of the 2000s might never have happened.

Moreover, the Bank has done a better-than-decent job at hitting its target. For the past 19 years, the target has been 2.0% year-over-year increases in the consumer price index. Over that period, the CPI’s rise has been within one percentage point of the target most of the time, and its average annual increase was 1.9% – not bad, considering the tumult of the past six years.

Why was the Bank’s pursuit of its goal so successful? Mainly because the goal was paramount: The key consideration in setting monetary policy has been whether Bank staff think inflation will come in above, at, or below 2%.

Which is what the January cut was all about. Critics of the Bank’s January Monetary Policy Report could usefully point out that its inflation forecast first appeared on page 15. It should have been on page 1, or even the front cover. That forecast showed that, largely because of lower oil prices, the Bank expects CPI inflation to drop to just 0.3% this spring, and only get back to 2.0% by the end of 2016. Since keeping inflation expectations anchored at 2.0% is important in realizing the benefits of the target, the case for easing to get inflation back to target in a timely way is strong. The Bank could have underlined that point by showing its forecast for inflation without the rate cut, and with it.

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Looking forward, the message from the January cut and the Bank’s commentary is clear: The Bank’s goal is inflation. It does not target the exchange rate. If it had been trying to hold the dollar down by keeping interest rates too low, or prop it up during slumps by keeping them too high, the CPI would not have risen around 2.0% so reliably over the past two decades.

Neither does the Bank target mortgage lending or consumer debt. Those things matter, but the Bank has only one tool – its policy interest rate – and cannot use it for more than one purpose. If Canadians are overextending themselves on housing, other governments – local governments with their controls on land use, and the federal government with its mortgage-insurance programs – should step in.

What about the dissonance between the Bank’s upbeat commentary on the economy and the gloomy inferences – some called it “panic” – of the rate cut? To the extent oil prices are down because of weakening demand and a slowing world economy, a rate cut is in order. To the extent they reflect ample supply, the world’s productive capacity benefits, and all central banks, including the Bank of Canada, can meet their inflation objectives with lower interest rates than would otherwise have been necessary. Either way, it’s all about inflation.

The January surprise was a sharp but salutary reminder that the Bank of Canada’s mandate is to deliver 2.0% CPI increases. Whether inflation looks likely to run above or below that mark is the surest indicator of what the Bank should do with the overnight rate. And if what the Bank should do is what it actually does, that should be no surprise.

National Post

William Robson is president and chief executive officer of the C.D. Howe Institute.

Politics is alive with the praises of a diversified economy. Some say that Canada should have one; others say that it already does, but both sides agree that it’s a goal to which Canadians should aspire. There’s even a homespun metaphor: “Don’t put all your eggs in one basket.” It’s just basic economics, right?

Well, no, it isn’t. In fact, it’s the exact opposite of basic economics. Adam Smith’s observations of the workings of a pin factory taught him — and us — the benefits of specialization. David Ricardo taught us that instead of aiming for a diversified economy in which 19th-century England produced both wine and cloth, it should specialize in the production of cloth — for which it had a comparative advantage — and import wine from a country such as Portugal, which had a complementary comparative advantage.

This is at times a difficult concept to grasp, but if there’s any idea that can claim to be “basic economics,” then surely it must be comparative advantage. In a large economy, diminishing returns will prevent the complete concentration to a single industry, but there is no inherent advantage in adopting policies whose goal is to avoid the gains from specialization.

If the eggs-in-a-basket metaphor has any meaning, it has to do with risk, not the composition of output. Fluctuations in world prices will generate corresponding variations in the income generated by selling exports on world markets. Here, basic economics tells us to manage risk by means of capital markets: a diversified asset portfolio offers at least partial protection from the vagaries of world markets. This instrument isn’t always available — particularly in developing countries — and in these instances diversifying the domestic mix of output can act as a crude hedge against these risks. But of course Canadians have ready access to international financial markets and are making increasingly heavy use of them.

You hear a lot about the increase in debt loads, but not so much about the significantly larger increase in asset holdings

It’s instructive to look at how Canadians have been using capital markets to hedge against recent events. The first thing to note is that contrary to a popular meme, the benefits of the oil boom were not entirely frittered away. Even though the Alberta government does not have a Norway-style sovereign wealth fund — a decision that seems to be more popular among Albertans than it is outside Alberta — a significant portion of the extra income was in fact saved. Statistics Canada’s data for national net worth — household, corporate and government sectors — stagnated at around 330% of Gross National Income (GDP plus a correction for income earned outside Canada) between 1990 and 2005. Since then, the ratio of net worth to income has jumped above 400%. You hear a lot about the increase in debt loads, but not so much about the significantly larger increase in asset holdings.

The other point is how Canadians have been hedging against exchange rate risk. According to the Bank for International Settlements, Canada’s real effective exchange rate — an index that includes our major trading partners and corrects for changes in price levels — increased by almost 50% between 2002 and 2012. This increase in the buying power of our dollar on world markets provided a significant boost to Canadian incomes. Of course, there was always the chance that these gains would be reversed — and indeed the real exchange rate has depreciated by 10% since 2012.

A simple hedge against depreciation is to buy foreign assets: if the dollar falls, then the value of assets denominated in other currencies will automatically rise. And buying foreign assets is what Canadian investors have done. Even as the exchange rate appreciation sharply reduced the value of foreign holdings, Canadian purchases expanded even faster so that holdings of foreign assets kept pace with GNI. This strategy has already begun to pay dividends: the decline in the Canadian dollar has already increased the value of foreign holdings by almost 40% of GNI over the past two years. It’s probably not a coincidence that estimates for national net worth have also increased by more than 30% of GNI during this time.

The eggs-in-a-basket metaphor is a much less useful guide for economic policy

Diversification makes eminent sense as a principle for asset management – and asset managers, public and private, have already learned this lesson. Given the current circumstances, many Canadians would probably be relieved to learn that some 69% of the assets managed by the Canadian Pension Plan Investment Board are located outside Canada.

But the eggs-in-a-basket metaphor is a much less useful guide for economic policy. Diversification has been the driving force behind any number of ill-conceived ‘”industrial policies” whose effect is to divert labour and capital away from the sectors where they are most productive. These efforts may succeed in producing an economy that is more diversified — but also less prosperous. It’s just basic economics.

Coca-Cola has been forced to suspend its automated tweet #MakeItHappy campaign — designed to transform mean tweets and negativity on the internet into cute images — after it was tricked into quoting Adolf Hitler’s Mein Kampf, Adweek reports.

The campaign launched during The Super Bowl last weekend with a 60-second commercial, “focusing on the importance of injecting happiness into the internet,” according to a press release from the company.

Gawker’s editorial labs director Adam Pash created a @MeinCoke Twitter bot, under the name “A.H.” and began tweeting passages of the book’s text. Sure enough, Coke did.

Screengrab/GawkerA screengrab taken from Gawker that turned a passage of Adolf Hitler's Mein Kampf, "When the territory of the REICH embraces all the Germans and finds itself unable to assure them a livelihood," into a cat playing the drums.

Reams of tweets followed, featuring ASCII images of cute cartoon characters like a cat playing drums and a happy-looking burger.

The tweets have now been deleted, but Gawker managed to catch some screengrabs.

Coca-Cola provided Adweek with this statement: The #MakeItHappy message is simple: The Internet is what we make it, and we hoped to inspire people to make it a more positive place. It’s unfortunate that Gawker is trying to turn this campaign into something that it isn’t. Building a bot that attempts to spread hate through #MakeItHappy is a perfect example of the pervasive online negativity Coca-Cola wanted to address with this campaign.”

Screengrab/GawkerA screengrab taken from Gawker of the, now deleted, Tweet that turned a passage of Adolf Hitler's Mein Kampf ,“German-Austria must be restored to the great German Motherland. And not indeed on any grounds of economic calculation whatsoever. No, no,” into a happy face.

Coke told Business Insider that Wednesday was always scheduled to be the final day for its game-day tool and that its social media channels have instead been put on its “Smile Petition” to sustain consumer engagement in the wider #MakeItHappy campaign. Sentiment across the whole social #MakeItHappy campaign has seen 95% positive to neutral, and just 5% negative, Coke told us.

In spite of the campaign’s sentiments, it seems odd that Coke did not prepare for such sabotage. Its Share A Coke campaign for example, which allowed customers to order a bottle with their name on the label at special events and from the internet, had an extensive list of offensive words blocked from being printed. That memorably omitted the word “gay” from being chosen on its website in South Africa. Coke later revised the tool to include the word, following backlash from consumers.

Here’s Coke’s Super Bowl ad, promoting its quest to bring more positivity to the internet:

The Montreal skyline is dotted with construction cranes as an unprecedented building boom continues to unfold in condo and office construction. On the surface, at least, signs of prosperity abound.

But look a little deeper and you’ll see a city that’s slipping behind the rest of the country. Over the last decade, Montreal’s economy grew by an average of just 1.5 per cent — the lowest rate among Canada’s major cities. Personal disposable income is also the lowest among the country’s eight biggest cities, and unemployment is among the highest.

The bad news doesn’t stop there. Montreal is living through a period of crumbling infrastructure, widespread corruption, failed governance, inadequate fiscal power, low private investment, an exodus of head offices and an outflow of people.

Even the real estate activity that’s dominating private investment in Montreal these days is of some concern to economists. They point out that it’s largely speculative and does little to improve productivity, innovation or the knowledge base of the local economy.

We’re starting to see the long-term cost of the city’s economic decline. What if Montreal had simply kept pace with the Canadian average over the last 25 years? A November report from the Institut du Québec, a research group started jointly by the Conference Board of Canada and the HEC Montreal business school, found that if the metropolitan area had grown at the Canadian average since 1987, per capita income would be $2,780 higher today and income for the province as a whole would be up even more.

“Despite its strengths and obvious attractions, Montreal suffers from major economic shortcomings compared with Canada’s other large urban areas,” said the report. “It fails to adequately fill its role as driver for the provincial economy.”

That role becomes more important in a global economy that relies on cities as engines of growth. We are witnessing intense competition between cities for capital, talent and ideas — a race that risks leaving Montreal behind.

At the dawn of the 1960s, the case could still be made that Montreal was Canada’s business capital, even though Toronto was gaining fast. A black-and-white snapshot of the city’s economy looked like this:

Perched at the top was a thriving financial industry, driven by banks, insurance companies, stock exchanges and investment brokers. The city was home to the head offices of the Bank of Montreal and the Royal Bank of Canada, as well as insurance giant Sun Life. Both the Montreal Stock Exchange and the Canadian Stock Exchange served a large community of brokerage and investment firms. A big part of the picture was a broad network of head offices in Quebec’s natural resource industry.

City of Montreal ArchivesSte-Catherine St. W. in 1963. Montreal was once the economic capital of Canada.

Farther down the chain were the factories that made Montreal hum: metal and machinery plants, appliance manufacturers and rail-equipment makers, food processors and cigarette plants. The so-called soft sectors of the manufacturing industry were thriving in the days just before Asian imports began. Montreal was Canada’s leader in clothing, textiles, leather and shoes, with the industry providing well over 100,000 jobs.

The St-Lawrence Seaway opened up the shipping industry through the Port of Montreal while the city served as headquarters for both Canadian National and Canadian Pacific Railways. In 1962, when world-renowned architect William Zeckendorf completed the stylish Place Ville Marie office tower, it seemed to symbolize a new optimism for Montreal.

What followed instead were decades of underperformance in which the city never fulfilled its promise. The head office operations of the Bank of Montreal and the Royal Bank gradually shifted to Toronto to take advantage of that city’s impressive growth as a financial centre. Political tensions over language and the issue of Quebec sovereignty hurt private investment and drove some of the wealthiest and best educated people out of the province. Sun Life left in a huff in 1978 after the Parti Québécois took power for the first time.

The Canadian Stock Exchange closed its doors in 1974, while the Montreal Exchange lost increasing trading volumes to its Toronto rival before switching its vocation to financial derivatives. The fancy new airport built in Mirabel didn’t take off as promised, with Toronto becoming the hub for Canadian air travel. At the same time, the city’s aging industrial base felt the first effects of globalization as imports from Asia began to hurt the textile and clothing industry.

Montreal Gazette/FileGazette front page from Jan. 7, 1978. Insurance giant Sun Life left the city for Toronto shortly after the Parti Québécois took power for the first time.

The Montreal economy tried to reinvent itself and got a boost from free trade in the 1990s. Industries such as aerospace gained in importance thanks to the success of aircraft maker Bomabardier Inc. while investment also picked up in pharmaceuticals and information technology.

But as the new millennium began, more negative trends had crept in: offshoring, outsourcing, contracting out. Companies had found new ways to cut costs by sending work to places like China, India and Mexico at a fraction of local wage rates. More industrial plants began to shut their doors.

Economist Mario Lefebvre, president of the Institut de Développement Urbain du Québec, points to a number of failures along the way. Perhaps the biggest, he says, is Montreal’s inability to adapt its transportation network to the new realities of the global economy. The airport, the port, the rail network and the highway system need to work seamlessly together.

“Goods and services are not produced in one place anymore, those days are gone,” he says. “Step one might be in Brazil, step two in Chicago, step three in Montreal and step four in China. To be a player in this kind of environment, goods and services must be able to come in and out of your city quickly.

“We have all the means of transportation but the fluidity between them is still very complicated. There are too many decision-makers involved and we end up with projects that are not completed as rapidly as they should be.”

But perhaps most serious, according to the Conference Board, is that on average more than 16,000 people a year leave the metro area for other parts of Quebec or other provinces and countries.

The city’s aging industrial base remains vulnerable because it hasn’t closed the productivity gap with other jurisdictions. “We have educated people,” says Lefebvre, “but we haven’t surrounded them with state-of-the-art technology.” The private sector hasn’t done its part to renew the city’s industrial base with new machinery and equipment. And with a low rate of investment in research and development, innovation in Montreal has lagged behind the rest of the country according to measures such as the number of patents per capita.

One of the biggest obstacles facing Montreal is its low rate of population growth. Among the country’s eight biggest cities, only Halifax had a lower rate of growth over the last 10 years. Montreal’s population grew at an annual average of one per cent, vs. 1.6 per cent for Toronto and nearly three per cent for Edmonton and Calgary.

The low birthrate and the low rate of immigrant attraction explain part of the trend. But perhaps most serious, according to the Conference Board, is that on average more than 16,000 people a year leave the metro area for other parts of Quebec or other provinces and countries.

Just holding on to that number of people each year would have added more than 450,000 to the population over the last 30 years. That would have meant more people working, paying taxes and spending money on housing, goods and services. It would have given a real boost to economic growth.

John Mahoney/Montreal GazetteClosed stores on Ste-Catherine St. in Montreal this month.

So would have a stronger commitment from the provincial government to help Montreal. Lefebvre points out that the Quebec government has been pushing a Plan Nord strategy to develop natural resources in the northern regions, but what Quebec really needs is a Plan Sud that helps Montreal develop its knowledge-based economy.

The payoff would be so much bigger, he argues, not only for the city but also for the province. A dollar of additional economic activity in Montreal generates at least another dollar for the province in spinoffs and benefits. Montreal funds more than half the government’s spending, 53 per cent of provincial GDP and more than 80 per cent of all research and development.

Along with a Plan Sud, the government should at last recognize that Montreal needs new tools to manage its economy, Lefebvre says, including new fiscal resources and powers to promote investment, integrate immigrants and train workers. The property tax base has reached the limit of its ability to fund those new services. While such legislation has been promised, it’s not yet clear how much real power will be conferred on Montreal.

The federal government has a role to play, too, Lefebvre argues. “I think we wasted an incredible opportunity when the GST was reduced by two percentage points (in 2006). A GST point is worth about $7 billion. If we had given just one point to the cities for infrastructure, that would have meant an extra $50 billion to $60 billion for infrastructure over the last eight years.”

Montreal is looking to become a more international place to do business, taking advantage of its multilingual and multicultural assets and its potential position as a gateway to the Americas for European and Asian trade and investment.

The city has suffered other blows. One is the decline in the number of head offices that call Montreal home. Between 1999 and 2012 Montreal lost nearly 30 per cent of its head offices, according to an estimate by the Institut du Québec. Toronto suffered a five-per-cent loss as economic weight shifted to Western Canada, but the impact on Montreal was far more painful.

“Head office jobs are important for the indirect impact they have,” said Jacques Ménard, president of BMO Financial Group in Quebec. Head offices support a range of activities like legal, financial, accounting and advertising services. They maintain high-quality, high-income jobs and provide the city with a measure of economic influence.

Part of the solution is to create more such companies in Montreal in the first place, Ménard says. Quebec is suffering from a deficit in entrepreneurship and can’t expect to replace these corporate losses without growing new success stories. “If you look at a company like Stingray Digital, it didn’t even exist seven years ago. It’s now in 110 countries,” Ménard says about the Montreal-based provider of digital music services. “I’m on the board of directors and I have seen the company grow to where it now has 200 high-paying jobs in its headquarters.”

Along with the head-office challenge, Montreal is looking to become a more international place to do business, taking advantage of its multilingual and multicultural assets and its potential position as a gateway to the Americas for European and Asian trade and investment.

European firms already have a significant presence here and now “there is a ton of money looking to leave Asia for investment diversification,” says Dominique Anglade, who heads the economic development agency Montreal International. Asian money represents a big potential opportunity for the city as it tries to sell itself internationally and attract both investors and professionals from abroad.

John Mahoney/Montreal GazetteConstruction continues around the Bell Centre in Montreal on Jan. 27.

People are eager to come here, she insists. “We had 300 openings on the last recruiting mission we did in Europe and for those openings there were 13,000 applicants. There’s a phenomenal attraction power, especially for workers who are educated.”

Still, it’s not easy for companies and professionals to move here. Companies are often deterred by the weight of regulation and red tape in Quebec while professionals face barriers such as the recognition of their credentials or concerns about French-language requirements and schooling.

When 50 top executives were interviewed last year by the Boston Consulting Group on the challenges facing Montreal, several said that the emphasis on French in the immigrant selection process restricts the pool of talent on which Montreal can draw. They argued it would be better to cast the net wider and invest more in French language promotion rather than in defensive measures.

At Ménard’s request, the Boston Consulting Group looked at the experience of other cities that suffered economic difficulties and how they managed to turn around. The report focused on cities such as Pittsburgh and Philadelphia in the U.S., Manchester in Britain and Melbourne in Australia. All have made impressive comebacks, owing largely to two common factors: a high degree of citizen engagement and a focus on infrastructure projects that have made those cites better places in which to live and work.

Last week, Canada’s telecom regular announced a host of new policy changes that are being hailed as big wins for consumers — at least, according to the Canadian Radio-television and Telecommunications Commission (CRTC).

One of the changes comes in response to years of complaints from television viewers over the practice of swapping Canadian commercials over American ones during the Super Bowl. The Super Bowl is perhaps the one time of the year when viewers actually want to see the commercials, but Canadian stations have typically run local ads during the broadcast — a process known as simultaneous substitution or “simsub.”

In recent years, Canadian viewers have simply taken to YouTube to watch the ads after the game. But no more. In a speech to a London, Ont., crowd Thursday, CRTC head Jean-Pierre Blais announced that the days of simsub during the Super Bowl are over. As of 2017, broadcasters will be banned from swapping Canadian ads in for U.S. commercials during the big game.

“What Canadians will get out of it is that they will finally get free from an anachronism with respect to the Super Bowl,” Mr. Blais said.

The irony, of course, is that the CRTC is responsible for many of the enduring anachronisms in Canadian broadcasting, though it has opted to flip the switch on this one.

And there’s another bizarre contradiction in the CRTC’s decision to ban simsub during the Super Bowl: Mr. Blais says the CRTC won’t get rid of the practice altogether because “the revenue it generates helps broadcasters create jobs and develop Canadian creative talent.” But this decision bans local broadcasters from airing Canadian advertisements specifically during the most-watched television event of the year. That’s a difficult line to reconcile.

The other major announcement made by the CRTC last week concerns the way cellphone providers that also own media businesses charge for data usage. In the past, telecom firms — Bell and Videotron, in particular — have exempted content streamed through certain apps from customers’ monthly data usage caps. In other words, while content streamed on YouTube or Netflix usually counts towards a user’s monthly data allowance, Bell offers a $5 package allowing an extra 10 hours of TV streaming of additional content — content that it also happens to own.

The CRTC found that this practice enables telecom firms to give preferential treatment to their own content and that it’s contrary to the notion of “net neutrality,” where all data is treated equal (at least in terms of the bandwidth it consumes). As such, these companies will be prohibited from offering such packages to their customers. “At its core, this decision [is] about all of us and our ability to access content equally and fairly in an open market that favours innovation and choice,” said Mr. Blais.

Yet, Mr. Blais’ lauding of “innovation and choice” is curious, considering the CRTC has just banned mobile providers from offering special packages to their customers. If he truly wanted to support consumer choice, he would give telecommunication companies free rein to offer their customers a range of packages that might interest them. If consumers didn’t want to get specialized content for little or no additional charge, they are free not to purchase such a package or stream using a different service. Further, it’s odd to hear Mr. Blais speaking of open markets. He does, after all, oversee an organization the exists specifically to distort the market in the name of promoting — read: subsidizing — the creation of Canadian-specific content that a truly open market would not sustain. Funny, that.

On the surface, last week’s announcements might seem like the CRTC is taking some very necessary steps toward allowing greater telecom freedoms. But the CRTC is, in fact, introducing new mobile and televisions restrictions. The route to a truly open market won’t be realized through further prohibitions. Evidently, the CRTC hasn’t recognized that yet.

One of the more persistent myths about prosperity is that it results purely from luck. Often, commentators credit the mere presence of oil, gas, potash and other natural resources for Western Canada’s recent (and presently fading) boom in investment, jobs and government revenues.

But Nigeria, South Africa and Venezuela all have natural resources in abundance. Yet on many prosperity measures from per person GDP to longevity, they lag far behind Hong Kong and Singapore, which possess no oil, gas or mineral deposits.

I note this enduring myth because Ontario and Quebec policy-makers might be tempted to believe a similar fairy tale: that a lower dollar will now magically transform Central Canadian economies.

A lower dollar might temporarily help a few businesses do a bit better; but the reason for a particular jurisdiction’s failure or success is more prosaic — it depends on getting the basics right, everything from the security of property rights and independent courts to tax levels and sensible (as opposed to burdensome) regulation.

At the sub-national level, a province needs smart policy on labour and land regulation. It also requires moderate tax levels.

Related

To understand why Ontario and Quebec are not poised to automatically replace the West as the economic engines of Canada, consider where oil and the dollar have been, and past trends.

Over the last several decades the monthly average per barrel oil price ranged from U.S. $11.35 (December 1998) to U.S. $133.88 (June 2008). The dollar was as low as 62 American cents (January 2002) and as high as U.S. $1.10 (November 2007).

So how has Central Canada fared during high dollar, low dollar and “yo-yo” oil prices over time? Let’s start with private sector investment.

From 1982 to 2013, the average annual private-sector investment (per worker) in Alberta was $45,842 followed by Saskatchewan ($35,458), British Columbia ($24,486), Ontario ($19,850) and Quebec ($18,271). By a wide margin, the West saw more investment (per worker) even when oil and natural gas and other resource prices were low.

Private-sector investment dollars are a “futures market” indicating where jobs will be created. Not surprisingly, unemployment rates have mostly followed investment flows. From 1982 to 2013, Saskatchewan (6.2%) had the lowest average annual unemployment rate, followed by Alberta (6.8%), Ontario (7.7%), British Columbia (8.9%) and Quebec (10.1%).

Unemployment rates can be lower if a province experiences a substantial outflow of people, especially among those of (mostly) working age. That was Saskatchewan until recently. For those between ages 15 and 64, Saskatchewan lost 115,245 people (from 1982 to 2014) on a net basis.

But here’s where the data — and the caveat for Ontario and Quebec — comes into play.

For Alberta, the worst period for interprovincial migration was between 1982 and 1989, when 81,134 people aged 15 to 64 left the province.

Quebec lost people in every single year since 1982, or 237,593 in total

After that, other than a small loss in the mid-1990s and a blip of a decline in the last recession, Alberta has gained people. In total, even with the steep 1980s-era losses, 339,381 people moved from other provinces to Alberta since 1982.

In contrast, while Ontario gained 53,083 working-age folks between 1982 and 2014, it hasn’t seen net positive migration numbers since 2003, and has been losing people ever since. Meanwhile Quebec lost people in every single year since 1982, or 237,593 in total.

B.C. has a mixed record in the interprovincial migration sweepstakes. It lost some people in the early 1980s and saw significant out-migration between 1998 and 2003, but has mostly gained working-age people — an extra 257,949 since 1982.

In short, despite past periods of low oil prices and a cheap Canadian dollar, since 1982 Ontario and Quebec have never overtaken Alberta and Saskatchewan in per worker private sector investment. And migration and unemployment rates have generally been healthier in the West than in Central Canada.

In Ontario and Quebec, future success will depend on the correction of poor policies that for years have hindered greater prosperity in those two provinces. That will require policy-makers to eschew magic bullet myths — such as how a low dollar will rescue Central Canada.